Altria's Juul investment goes up in smoke

Altria's decision to pay $12.8 billion last year for a 35% equity stake in vaping giant Juul is turning into one of the worst strategic investments in memory.

Driving the news: Altria on Thursday took a $4.1 billion impairment charge on its Juul investment, mostly blaming the "increased number of legal cases pending against Juul," which it says have increased more than 80% since last November 2019.

• Add in an an earlier impairment charge, and Altria now values its Juul stake at $4.2 billion — representing a loss of 67%, or $8.6 billion, in just 14 months.

The big picture: Altria and Juul also amended certain non-financial parts of their agreement, including giving Altria an option to exit a non-compete agreement if Juul either gets banned from selling e-vaping products in the U.S. for a year, or if Altria writes down the carrying value of its investment to 10% of the original $12.8 billion price.

• And, just for one last kick in the teeth, the CEO of Philip Morris said on CNBC that the idea of a reconsolidation with Altria "is finished."

Between the lines: If there's any silver lining here for Juul, it's that Altria did also maintain its commitment "to work together" on pre-market tobacco product applications (PMTAs), and to continue giving it regulatory affairs support.

What they're saying:

"As we continue to reset the vapor category, we are committed to advancing the long-term potential for harm reduction for adult smokers while combatting underage use. We are focused on building a company for the long-term by preparing high-quality, scientifically rigorous Premarket Tobacco Product Applications to earn authorization in the U.S. while we take a methodical approach to our overseas presence."

The bottom line: Altria thought its deal for Juul would lift all nicotine-stained boats, kicking off an industry consolidation that would protect all players from changing consumer and retailer tastes. Instead, it might have just blown a $12.8 billion hole in the hull.

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